Identifier
Created
Classification
Origin
09KINGSTON361
2009-05-07 20:08:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kingston
Cable title:  

JAMAICA: PM GOLDING'S 2009-10 BUDGET PRESENTATION

Tags:  ECON ENRG SENV EAIR EMIN ASEC SOCI ETRD TRSY OPIC 
pdf how-to read a cable
VZCZCXRO9083
PP RUEHGR
DE RUEHKG #0361/01 1272008
ZNR UUUUU ZZH
P 072008Z MAY 09
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC PRIORITY 7599
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 KINGSTON 000361 

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) (WSMITH)
WHA/EPSC (MROONEY)(FCORNEILLE)
EEB/ESC/IEC/EPC (MMcMANUS)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW
USTDA FOR NATHAN YOUNG AND PATRICIA ARRIAGADA
OPIC FOR ALISON GERMAK

DEPT PASS TO USTR (CATHERINE HINCKLEY)

E.O. 12958: N/A
TAGS: ECON ENRG SENV EAIR EMIN ASEC SOCI ETRD TRSY OPIC
AID, OAS, IBRD, IDB, JM, XL
SUBJECT: JAMAICA: PM GOLDING'S 2009-10 BUDGET PRESENTATION

REF: A) KINGSTON 315
B) KINGSTON 269
C) KINGSTON 245
D) KINGSTON 223

UNCLAS SECTION 01 OF 02 KINGSTON 000361

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) (WSMITH)
WHA/EPSC (MROONEY)(FCORNEILLE)
EEB/ESC/IEC/EPC (MMcMANUS)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW
USTDA FOR NATHAN YOUNG AND PATRICIA ARRIAGADA
OPIC FOR ALISON GERMAK

DEPT PASS TO USTR (CATHERINE HINCKLEY)

E.O. 12958: N/A
TAGS: ECON ENRG SENV EAIR EMIN ASEC SOCI ETRD TRSY OPIC
AID, OAS, IBRD, IDB, JM, XL
SUBJECT: JAMAICA: PM GOLDING'S 2009-10 BUDGET PRESENTATION

REF: A) KINGSTON 315
B) KINGSTON 269
C) KINGSTON 245
D) KINGSTON 223


1. (SBU) SUMMARY: Responding to criticism from the opposing People's
National Party (PNP),Prime Minister (PM) Bruce Golding defended his
proposed national budget before Members of Parliament on May 5.
During the speech attended by emboffs, Golding detailed the dire
economic reality facing the Government of Jamaica (GOJ) and the
resulting necessity of enhancing revenue through measures such as
the increase of the special consumption tax (SCT) on gasoline. To
decrease dependence on petroleum, the GOJ will invite investment
proposals for the development of power generation from liquid
natural gas (LNG). The GOJ's lending institutions will bolster
efforts to provide access to capital for business development, and a
new public-private partnership for the creation of a venture capital
company was announced. The Opposition's call for diverting funds
from the Universal Access Fund (UAF) for infrastructure projects was
discredited, with Golding mentioning the "hostile response of U.S.
regulatory authorities" on the issue. Golding acknowledged that if
conditions worsen, a return to the IMF for support is not out of the
question. Golding praised President Obama's recent signaling of
recommitment to the Carribbean. Despite rumors of public

demonstrations to reject the JD 18 billion (USD 205 million) tax
package, no serious protests materialized. End Summary.

"THE TIDE HAS GONE OUT"
--------------

2. (SBU) Golding detailed Jamaica's grim economic situation in the
climate of global recession. Since 1970, the Jamaican economy has
grown by more than 3 percent only five times. In the last four
decades, the rest of the CARICOM community has grown cumulatively by
173 percent. During the same period, the Jamaican economy has grown
by less than 25 percent. Jamaica's per capita income is the fourth
lowest in the region. Golding cited the import-export imbalance, the
fallout in bauxite/ alumina, and the decline in remittances as
particular sources of economic strain. In short, the "tide has gone
out," and the Jamaican economy has been left high dry. Golding
cited the tourism industry, which experienced 4 percent growth
during 2008, as Jamaica's sole bright spot.

NO CHOICE BUT TO RAISE TAXES
--------------

3. (SBU) Given the economic climate, Golding said the GOJ has no
choice but to raise taxes. The tax package is based on
recommendations of the Tax Policy Review Committee, which was
established in 2003 by the previous administration. The proposed
tax increases are actually less severe than the original committee
recommendations, which included applying the general consumption tax
(GCT) on all products, including gasoline and electricity.
Responding to criticisms of the GCT being levied on books and
computers, Golding said changes to the proposal will be announced by
Finance Minister Audley Shaw offering certain waivers for students.
Golding reiterated that this tax restructuring will further the
country's shift to direct from indirect taxation. Golding called
the proposed changes "more efficient, equitable, and simpler to
administer." The tax plan is expected to generate JD 18 billion
(USD 205 million) in net additional revenue (reftels).

"A STEPPING STONE, NOT A STUMBLING BLOCK"
--------------

4. (SBU) Golding challenged the GOJ to use the current economic
crisis to foster reform, growth, and eventual prosperity. Reform
measures will include freezing non-critical job vacancies and moving
some public sector employees to clerical police jobs, which will
allow trained police officers to be out on the streets. In terms of
fiscal responsibility, Golding said Jamaica must end its dependence
on excessive borrowing. Still, the administration will consider a
return to the IMF for assistance if necessary, especially given the
possibility of the IMF offering budgetary support. Golding cited
soaring energy costs as a major economic hurdle for Jamaica.
According to the PM, "the reopening of our alumina plants even after
market conditions improve hangs on our ability to obtain cheaper
energy." In December 2007, one kilowatt hour (Kwh) of power in the
US costs just over six US cents, while in Jamaica, the same KWH
costs nearly 21 cents. (Note: Energy costs rose as high as 34 cents
per Kwh during the summer of 2008, but have declined slightly to 30
cents per Kwh. End Note). The GOJ has determined that LNG should
be a priority for energy diversification. (Note: In recent months,

KINGSTON 00000361 002 OF 002


the GOJ also said it would pursue a major coal power generation
project. End Note.)

ACCESS TO CAPITAL
--------------

5. (SBU) Small and medium enterprises are a vital part of the
Jamaican economy. To facilitate growth, the GOJ will partner with
the private sector to establish a credit bureau to secure loans for
individuals who lack collateral, but carry solid credit histories.
The GOJ also will launch a new venture capital company to facilitate
launching new businesses. A youth entrepreneurship program will
help address the lack of opportunity for high school graduates.
Students can submit business proposals, and students whose proposals
are accepted will receive business training and be eligible for
business financing. To fill workforce voids in the agriculture and
healthcare sectors, student loan rates will be cut to 4 percent from
12 percent for students who embark on careers in these fields.

UAF WILL NOT BE RAIDED
--------------

6. (SBU) Golding accepted the Opposition's call for JD 1 billion to
be shifted from Jamaica's Tourism Enhancement Fund (TEF) to finance
infrastructure in squatter settlements surrounding resort areas.
However, the call for the diversion of funds from the UAF for
similar infrastructure development projects was sharply rejected.
Golding, citing the displeasure of U.S. authorities, said the UAF
was to be used exclusively for internet expansion projects and
e-learning.

USA-JAMAICA RELATIONS: MOVING FORWARD
--------------

7. (SBU) Reflecting on the meeting between President Obama and
Latin American and Caribbean leaders during April's Summit of the
Americas, Golding expressed his pleasure with the USG's recommitment
to the Caribbean. Joint issues of concern include the global
economy, immigration, narco-trafficking, the gun trade, and offshore
banking. Caricom leaders will meet with President Obama in July to
continue the dialogue. Golding mentioned the GOJ's desire for a
change in U.S. policy toward Cuba, but said the path to achieve this
was through diplomacy.

COMMENT
--------------

8. (SBU) Given fears of public protests in response to raising
taxes amid a major economic downturn, Golding faced a major
challenge in defending the budget. He appears to have succeeded in
doling out enough social measures to placate the poor, but still
targeting spending and cuts in a way that should prepare Jamaica for
future growth. In a wise political move, he conceded to the PNP on
the issue of the TEF, while holding his ground on the narrow use of
UAF funding. There is no indication at this time that the GOJ will
seek to transfer UAF resources to infrastructure projects. The move
to LNG is a step in the right direction in terms of diversifying
Jamaica's energy supply, but at a price tag in the hundreds of
millions of dollars, it is not likely to begin without major foreign
direct investment. Although the venture capital company could be an
important factor in future economic growth, Jamaicans' cultural
reservations about shared company ownership may make it difficult
for the project to flourish. The lack of mass demonstrations
signals the public's acceptance of the budget and the acknowledgment
of the dire economic conditions facing Jamaica and the world. End
Comment.
MOSS